Ethnic diversity and economic diversification: the case of Russian regions

Scientific researchers highlight the dependency of Russian economy on hydrocarbon industry that imposes higher risks for macroeconomic instability in the country during the global commodity prices volatility and geopolitical turmoil. Economic diversification is one of the most effective tools that can offset the effects of external shocks on the national economy. Ethnic minorities can potentially contribute to the economic diversification and sustainability of the national economy. They have their own religions and traditions, which make impact on production features and employment; many ethnic groups are mainly engaged in traditional economic activities. Their development can potentially cover some of the needs of the Russian market. However, this issue remains understudied. Therefore, the aim of the study is to assess the impact of ethnic diversity on the economic diversification of the Russian regions. For analysis we use panel data for 83 Russian regions over the period of 2000- 2020. Ethnic diversity is represented by ethnic fractionalization index, number of major religions and official languages, while the decomposition of the Theil index represents the measure of the economic diversification. Considering high heterogeneity of regional data, we implement quantile regression approach with fixed effects. The empirical evidence shows the absence of significant impact of the ethnic diversity on economic diversification. However, in the regions, where more religions are represented, the degree of economic diversification is higher. The results obtained expand the existing literature on the issue in the context of the Russian regions that can be used in development of strategic mechanisms for the state regulation in the field of support for ethnic minorities and reduction of the economic concentration in Russia.